ExpertHard1 markMultiple Choice
CPA · Question 26 · Area II: Balance Sheet Accounts
Beacon Corp. has available-for-sale debt securities with the following data at year-end:<br/>- Amortized cost: $450,000<br/>- Fair value: $420,000<br/>- Previous cumulative unrealized loss in OCI: $15,000<br/><br/>What journal entry should Beacon record at year-end?
Beacon Corp. has available-for-sale debt securities with the following data at year-end:<br/>- Amortized cost: $450,000<br/>- Fair value: $420,000<br/>- Previous cumulative unrealized loss in OCI: $15,000<br/><br/>What journal entry should Beacon record at year-end?
Answer options:
A.
Debit Unrealized Loss (Income) $30,000; Credit AFS Securities $30,000
B.
Debit Unrealized Loss on AFS Securities (OCI) $15,000; Credit AFS Securities $15,000
C.
Debit AFS Securities $15,000; Credit Unrealized Gain on AFS Securities (OCI) $15,000
D.
No entry required
How to approach this question
Calculate the total unrealized gain/loss (fair value vs amortized cost), compare to the existing OCI balance, and adjust for the difference. AFS securities' unrealized gains/losses flow through OCI, not net income.
Full Answer
B.Debit Unrealized Loss on AFS Securities (OCI) $15,000; Credit AFS Securities $15,000✓ Correct
Debit Unrealized Loss on AFS Securities (OCI) $15,000; Credit AFS Securities $15,000
Under ASC 320, available-for-sale debt securities are measured at fair value with unrealized gains/losses in OCI. Total unrealized loss = $450,000 - $420,000 = $30,000. Since $15,000 loss was previously recorded, an additional $15,000 loss must be recorded in OCI.
Common mistakes
Recording unrealized gains/losses in net income instead of OCI, recording the total unrealized amount instead of the change, or getting the debit/credit direction wrong
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